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The Corner

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Those Colossal, Recklessly Irresponsible $2 Trillion Errors



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It’s laugh-out-loud funny to hear the Obama administration’s all out assault on S&P’s math skills. According to the administration, if the downgrade in America’s credit rating is not the fault of the Tea Party (apparently for demanding the very spending cuts the political class’s refusal to make prompted the downgrade), it must be due to what the administration calls S&P’s “colossal” $2 trillion error — indicative, Treasury’s Turbo Tim Geithner told NBC News, of the rating agency’s “stunning lack of knowledge about basic U.S. fiscal budget math.” It couldn’t possibly be President Obama’s outer-worldly spending spree, right? It couldn’t possibly be that we are at the point of borrowing because we can’t otherwise make the interest payments on our prior borrowing.

This jogged my memory. So I searched through NRO’s collection of Obama administration Friday Night Bad News Dumps until I found this little ditty, from nearly two years ago. On a sleepy late August Friday in 2009, after the president and his family had already skipped town for their Martha’s Vineyard vacation, the administration quietly announced that it had made a wee mistake in calculating deficit projections over the next ten years. Consequently, the White House Office of Management and Budget was revising its debt totals from about $7 trillion to about $9 trillion — wouldn’t you know it: a $2 trillion error that some of us thought was downright colossal.

The White House confession of error in 2009 brought President Obama into line with the Congressional Budget Office, which had been projecting a $9.1 trillion deficit over that same timeframe. Interestingly, it is S&P’s departure from the CBO’s projections that now causes the Obama administration to frame S&P as numbskulls.

Yet, as S&P has explained, unlike the administration and the CBO, it focuses on a three-to-five year window. S&P finds that this timeframe, which is more in the control of the current Congress and president, is a more reliable predictor of financial health than illusory ten-year forecasts. In the tighter window, the difference between S&P and the CBO was not that great — a difference of $345 billion, not $2 trillion, and one which, accepting the CBO’s projection, would still leave the U.S. at a dangerously high debt-to-GDP ratio. (As the Wall Street Journal’s editorial notes this morning, debt-to-GDP has shot up over 40 percent since Obama took office.) Basically, S&P is saying the debt ceiling deal with its backloaded cuts that are unlikely ever to happen is, on any accounting, unserious. We opponents of the deal have been saying that all along. It was thus interesting to find the Journal’s editors — supporters of the deal — sounding very much like hobbits this morning:

The Obama Administration’s attempt to discredit S&P only makes the U.S. look worse—like the Europeans who also want to blame the raters for noticing the obvious. Treasury officials and chief White House economic adviser Gene Sperling denounced S&P for relying on a Congressional Budget Office scenario that overestimated the U.S. discretionary spending baseline by $300 billion through 2015 and $2 trillion through 2021. But even adjusting for that $2 trillion would only reduce U.S. publicly held debt to 85% or so of GDP—still dangerously high. And that assumes that recently agreed upon spending caps are sustained over a decade, something which rarely happens. [My italics.] 

In any event, since so much is being made by the administration of CBO’s prowess at “basic U.S. fiscal budget math” in arriving at ten-year forecasts, thanks are in order to Zero Hedge, which dug out CBO’s 2001 forecast of where we’d be today. According to CBO, we were going to be sitting pretty: The debt would essentially be paid off (except for holders of bonds that hadn’t matured yet), the debt-to-GDP ratio would be a tiny 4.8%, Treasury would be in the black — holding $2.4 trillion more in uncommitted funds than it owed in debt obligations, and Leviathan would be collecting 2011 budget surplus of $889 billion!

I guess they were a tad off. But not to worry, I’m sure they’ve got 2021 pegged to the penny.



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